MPs demand more powers for local government as tide goes out on centralism

A fast-moving campaign to give local councils more powers to raise and spend their own taxes has been backed by an influential committee of MPs.

In the latest contribution to the decentralisation debate, the Communities and Local Government Committee said the “high water mark of Whitehall control” may have been passed and “the power to raise, retain and spend money locally is back on the political agenda”.

The MPs warned that handing tax-raising powers to Scotland, Wales and Northern Ireland, alongside the financial autonomy enjoyed by European cities, simply highlighted how English cities remained firmly in the grip of central Government control.

Committee chair Clive Betts said: “The Government should work with groups of local authorities, focused initially on England’s large cities, to break the log-jam stopping local areas from shaping their economic destiny.

“The public might well ask, when Scotland and Wales are being promised ever greater fiscal devolution, why not England? Devolving these powers is the next step on the path to genuine localism.”

“Fiscal devolution in England is an idea whose time has come. The long shadows cast by the fiscal turmoil of the 1980s and 2000s—failed reform of local government finance, financial irresponsibility in parts of local government, inflexible, formulaic equalisation of local authorities’ needs and resources and, above all, firm control by central Government— have started to recede.”

The MPs said it was wrong that while city regions like Greater Birmingham have economies larger than the whole of Wales they possess limited powers to raise taxes and decide how to spend the money.

The committee’s report challenges the Government to agree a framework of taxes, powers and responsibilities which can be devolved and decentralised to local authorities.
MPs called for a range of options from decentralisation of spending powers to full fiscal devolution of several taxes and powers to institute new taxes and enhanced borrowing powers.

The report said it was likely that tax-raising powers would only be handed down to groups of local authorities working together in partnership such as combined authorities similar to Greater Manchester.

Recommendations from the committee include:
• The area to which fiscal powers are devolved should function as an economic unit—most likely being a group of authorities such as in London or the areas covered by combined authorities.
• The economic area should be able to demonstrate a record of competent, strategic financial management and have governance arrangements which ensure transparency and accountability, including democratic elections.
• The powers and responsibilities devolved should be subject to negotiation between the authorities seeking the powers and central Government.
• The arrangements governing fiscal devolution should balance incentives to stimulate local growth with some equalisation and redistribution of resources from authorities with the greatest resources to those with the greatest needs.
• The initiative for seeking powers and responsibilities should lie with local authorities.

The MPs said it was “entirely reasonable” for English cities to want greater control of money raised from their areas and spent locally.

The report stated: “English local authorities, when compared with their counterparts in other developed nations, have limited control over local taxation and, as a consequence, rely, by comparison, disproportionately on central Government funding.

“The UK Government is in the process of granting substantial fiscal devolution to Scotland and Wales. Ministers have therefore accepted the principle of fiscal devolution from Whitehall.

“When the changes for Scotland and Wales take place, England’s local authorities will be left in an increasingly anomalous position, with a little more responsibility for spending than they have now but much less control over taxation than the Scottish Parliament and the Welsh Assembly.

“By giving politicians outside Westminster the responsibility for raising, as well as spending, money locally, fiscal devolution would bring decisions on how that money is generated and spent much closer to local people—and make those who make such decisions much more visible.”

Cities and city regions seeking to assume more control over local property taxes and enhanced borrowing powers would have to demonstrate how their particular unit functions as an economic entity, the report added.

“They may cut across administrative boundaries and are likely to be geographically large in scale. We see merit in starting with an existing model. Combined authorities provide one potential example. But such areas could include and, in some cases already do include, large cities, smaller cities and counties.”

In Birmingham, city council leader Sir Albert Bore made his contribution to the localism debate by challenging the Government to devolve significant funding to greater Birmingham and hand over powers to run economic development, transport, skills and housing.

Addressing a conference to mark the 100th anniversary of the death of Joseph Chamberlain, Sir Albert said: “We are calling for a single Budget for Birmingham that will enable us to integrate public services and shift spending from expensive acute services to prevention.”

He was optimistic about an emerging localism consensus among the main parties, but warned the process would be difficult and drawn out because of resistance to change from Whitehall and Westminster.

Sir Albert said Chamberlain’s methods in the late 19th century, which relied on creating income streams for the council through buying up and investing in utility companies, would not be possible today given the rigid Whitehall control over local government.

He continued: “In those days there was little legislation controlling the activities of a city. Ideas and innovations were made in the cities and then picked up later by Whitehall. As late as 1920, over 70 per cent of the money spent by councils was raised locally. The Treasury simply did not concern itself with spending by local authorities.

“By 1950, electricity, gas, hospitals and major trunk road provision were all under central control and by the mid 1970’s water supply, sewerage and local health services would join them. There was a shift from Chamberlain’s gas and water trading services to the local delivery of a national welfare state, removing from local government its commercial activities and forcing it to focus more on services for specific groups, rather than the whole community.

“Along the way there were various green and white papers and inquiries that grappled with the problems of revaluing the rates and the options for a more localised and broadly based finance system. But the march of centralism moved inexorably on.”

Describing a “radical agenda for change that Chamberlain himself would have been proud of”, Sir Albert said he was committed to devolving decision making and resources closer to the neighbourhoods of Birmingham.

He added: “To take this further we are conducting a radical review of our community governance arrangements over the year ahead.

“We are also aiming to empower citizens and community groups to play a much bigger role in co-producing services – something we are promoting through our Standing up for Birmingham campaign.”